Small Business 401(k) Blog

If you’re leaving your job for a new employer, you must decide what to do with your 401(k) account. To keep growing your savings tax-free until retirement, you could have up to 3 options: keep it where it is, roll it to a new employer-sponsored plan, or roll it to a personal IRA. It’s important to make an educated decision. Otherwise, you risk making your dream retirement more expensive than necessary.

On March 15, 2018, the Fifth Circuit Court of Appeals invalidated the Department of Labor’s (“DOL”) Fiduciary Rule in a 2-1 decision. If the DOL does not request a rehearing within 45 days, the regulation will die. If that happens, the rules for 401(k) investment advice that existed before the Fiduciary Rule will return. That means some financial advisors – basically, brokers and insurance agents - will once again be able to give conflicted investment advice by recommending high-priced 401(k) investments that pay them rich commissions over less expensive - but comparable - alternatives on May 7, 2018.

Over the past decade, several high-profile 401(k) fee lawsuits and DOL efforts to implement a fiduciary standard for professional investment advice have put 401(k) fiduciary responsibility in the national spotlight. Unfortunately, this attention has done little to help employers understand and meet their 401(k) fiduciary responsibilities. This confusion is a big problem because employers risk personal liability when these responsibilities are not met.

Happy Holidays from the Frugal Fiduciary! As 2017 comes to a close, we looked back through this year’s blogs to find the most read.

Index funds not only offer 401(k) participants superior returns to comparable actively-managed funds net of fees, they are a clear and simple way for 401(k) sponsors to meet their investment-related fiduciary responsibilities.  Sponsors need only select three or more prudent investments that allow plan participants to sufficiently diversify their accounts.  Index funds are indisputably “prudent” by meeting their investment objective for market-correlated returns at reasonable fees.

When I started my 401(k) career in the mid-1990’s, employers who sponsored a 401(k) plan with little to no assets had few 401(k) provider options. The options they had – generally, brokerage and insurance companies – treated 401(k) plans like a one-size-fits-all product by restricting fund options to expensive funds (usually proprietary) that charged a minimum amount of hidden 401(k) fees and plan designs to basic options that could be administered cheaply. Because of their hidden fees, the value of these high-profit products was rarely scrutinized by 401(k) plan sponsors. Today, small 401(k) plans have much better provider options available. Thanks to DOL fee disclosure rules and some high-profile 401(k) fee lawsuits, employers are scrutinizing 401(k) fees now more than ever and that’s forcing 401(k) providers to deliver more valuable services for lower fees. This trend has made providers that treat 401(k) plans like a service - not a product - affordable to 401(k) plans of any size. Instead of restrictions, these providers offer impartial fund advice, consultative plan design expertise and personalized customer service – often for lower fees!